I think it's worth readin' this.
 Taken from: http://www.wservernews.com/

Your Smartphone -IS- Spying On You!

There is a process installed on most recent smart phones called Carrier IQ. You cannot stop this process. It looks at what is happening on the phone and sends every button you press to the IQ app. From there, the data — including the content of text messages — is sent to Carrier IQ’s servers, in secret. I checked it out on my own HTC Android phone from Sprint and sure enough, it's there.

It cannot be turned off without rooting the phone and then replacing the whole OS. Moreover, even if you stop paying for service from your carrier and just use Wi-Fi, your phone still reports to Carrier IQ. Dang! Worse, if you use Google search, and type in a search term, this is supposed to be https, so it should be encrypted. However, the Carrier IQ software sends it over Wi-Fi in cleartext: #DOUBLEFAIL.

This particular software is installed on hundreds of millions of handsets, including modern BlackBerry and Nokia phones, and early versions of Apple's iOS, but no one knew about it until Android developer Trevor Eckhart analyzed how it works. Carrier IQ's software is even running on every iOS version dating back to iOS 3, well-known iPhone hacker "Chpwn" said in a blog post. (Apple seem to have woken up with iOS5 where you can turn off Diagnostics and Usage in Settings.) Link to Chpwn here: http://www.wservernews.com/go/1322990280328

The software secretly logs pretty much anything that happens on a phone, supposedly for the reason that carriers and phone manufacturers 'can do quality control'. Yeah right, maybe so, but Carrier IQ can be served with subpoenas as well, and then all traffic is right there for Big Brother to be perused. Me no like. And think about compliance for a moment! This thing has a bunch of legal and ethical angles that the lawyers are just going to LOVE. I'm pretty sure the first class action lawsuits are being filed are you read this.

I would not be surprised if this will go all the way up to the Supreme Court, it is related to the the Fourth Amendment of the U.S. Constitution: "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized."

Wow, what a privacy and security hole, unbelievable. Below is the 17-min video where he clearly shows what is going on. Eckhart calls it a rootkit, but that is a bit much, though it clearly qualifies as a Backdoor Trojan in my book.

Probably CIQ started out with the laudable idea to measure carrier and handset performance. But that is where it went off the rails in a hurry. Using code that acts like a backdoor Trojan is totally the wrong way to do that. I wonder if they heard of the Sony rootkit debacle of 2005?

The carriers (and Carrier IQ) have access to Android source code, and apparently they do what they want with it, without Google being able to object. Apple seems to have taken action, caused by user backlash. Google, I suggest you have a look into this... remember 'do no evil'?

Ben Scott remarked: "A while ago some people said, "Glad I'm on Verizon!". Then the apparent Verizon reporting was discovered. Other people were saying, "Glad I don't use Android!". Then Symbian and RIM reporting was discovered. Other people said, "Hah hah! Apple would *never* let this happen!" Then the iOS reporting was discovered. There appears to be a trend here." I wonder if the Carriers are in bed with the Feds,and that Law Enforcement is using this. Talk about privacy violations.

You can see the video where Eckhart demos what happens on Android. Not that I have anything to hide, but I'm going to root my phone now, or look for some app that rips out CIQ.
Video on WIRED:

Update: Looks like Eckhart -has- some code that checks for CIQ and disables it. Less time than rooting a phone. Start here: